US embassy cable - 02TEGUCIGALPA3418

UNCLAS SECTION 01 OF 04 TEGUCIGALPA 003418 
 
SIPDIS 
 
FOR EB/TPP/MTA/MST 
USTR FOR GBLUE 
GENEVA FOR USTR 
GUATEMALA FOR COMMATT:DTHOMPSON 
 
E.O. 12958: N/A 
TAGS: ETRD, EFIN, ECON, HO 
SUBJECT: HONDURAS NATIONAL TRADE ESTIMATE REPORT 2003 
 
REF: SECSTATE 225281 
 
1.  The text of the 2003 National Trade Estimate report for 
Honduras follows. 
 
TRADE SUMMARY 
 
2.  (Note that the following paragraph to be updated by 
Washington with USDOC statistics).  In 2001, the U.S. trade 
deficit with Honduras was $690 million, an increase of $183 
million from the U.S. trade deficit of $506 million in 2000. 
U.S. goods exports to Honduras were $2.4 billion, a decrease of 
$147 million (5.7 percent) from the level of U.S. exports to 
Honduras in 2000.  Honduras was the United States' 40th largest 
export market in 2001.  U.S. imports from Honduras were $3.1 
billion in 2001, an increase of $36 million (1.2 percent) from 
the level of imports in 2000. 
 
3.  (We also understand that this paragraph will also be updated 
with USDOC statistics).  The stock of U.S. foreign direct 
investment (FDI) in Honduras in 2000 amounted to $115 million, a 
decrease of 8.7 percent from the level of U.S. FDI in 1999.  U.S. 
FDI is concentrated largely in the manufacturing sector. 
 
IMPORT POLICIES 
 
Tariffs 
 
4.  In 1995, Honduras and other members of the Central American 
Common Market (CACM) agreed to reduce and harmonize the common 
external tariff (CET) at zero to 15 percent, but allowed each 
member to determine the timing of the reductions.  Honduras has 
reduced its tariffs to one percent on capital goods, medicines, 
agricultural inputs, and raw materials for those imports produced 
outside of the CACM.  Tariffs on non-CACM final goods were 
reduced to 16 percent on December 31, 2000.  Honduras intends to 
reduce its non-CACM external tariffs for other goods 
(intermediate and finished) over the next several years to 
between 10 percent and 15 percent.  Per the tax reform law of 
June 2002, import tariffs on cars were reduced from 40 percent to 
15 percent ad valorem.  Vehicles older than seven years are no 
longer allowed entry to Honduras. 
 
Non-tariff Measures 
 
5.  Honduras was obligated to implement the WTO Customs Valuation 
Agreement on January 1, 2000.  WTO records show that Honduras has 
not yet notified its legislation nor the Customs Valuation 
Checklist to the WTO Committee on Customs Valuation.  In November 
1999, the WTO Committee on Customs Valuation granted Honduras' 
request to use minimum values for certain used clothing products 
until January 1, 2002, and for certain tires, appliances, and 
used vehicles until January 2, 2003. 
 
6.  Honduras implements a price band mechanism for imports of 
yellow corn, sorghum, and corn meal.  This price band is 
calculated from a time series of international prices on a given 
product for the prior 60 months.  The 15 highest and lowest 
monthly prices are eliminated, with the remaining highs and lows 
establishing the price band.  Imports entering with values within 
the defined band are assessed a 20 percent tariff.  Imports 
entering with prices above the band are assessed duties at a rate 
lower than 20 percent, according to a predetermined schedule; 
those imports priced below the band are assessed a tariff higher 
than 20 percent.  However, the government also maintains a 
seasonal restriction on the price band.  From September to 
January the minimum allowable duty is 20 percent for corn and 15 
percent for cornmeal and sorghum.  From February to August, 
duties are allowed to fluctuate according to the predetermined 
duty tables for each commodity.  This seasonal restriction has 
been added to provide additional protection to local grain 
farmers during the main harvest season.  In addition to the 
above, the Government of Honduras, farm groups, and importers 
have agreed to a quasi-tariff-rate quota in which the price band 
remains in effect until local grain supplies are exhausted, after 
which a one percent duty is applied to imports.  The United 
States has strongly opposed the Honduran policies on corn and 
sorghum as limiting access for U.S. agricultural products. 
 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
 
7.  Honduras has had a ban on U.S. raw poultry imports for some 
time.  USDA FAS estimates that if Honduran restrictions on U.S. 
raw poultry and poultry parts were lifted, U.S. producers could 
export an additional USD 10 million of poultry products to 
Honduras, annually.  The Embassy has received a series of 
complaints in 2002 from local importers regarding import 
restrictions, difficult certification requirements and other 
obstacles to the importation of U.S. pork, poultry and dairy 
products.  Honduran food safety officials have restricted the 
imports of U.S. chicken and pork products citing sanitary 
concerns.  Local importers charge that Honduran officials are 
using sanitary and phyto-sanitary measures to block U.S. imports 
to protect local producers and in some cases to promote diversion 
of trade to other Central American countries.  Changes in 
sanitary and phyto-sanitary requirements are seldom reported to 
the WTO as required, and create uncertainty among U.S. suppliers 
and Honduran importers.  The Honduran government requires that 
sanitary permits be obtained for all imported foodstuffs. 
 
GOVERNMENT PROCUREMENT 
 
8.  Under the new State Contracting Law, which entered into force 
in October 2001, all public works contracts over $63,000 must be 
offered through public competitive bidding.  Public contracts 
between $31,000 and $63,000 can be offered through a private bid 
and contracts less than $31,000 are exempt from the bidding 
process.  To participate in public tenders, foreign firms are 
required to act through a local agent.  Local agency firms must 
be at least 51 percent Honduran-owned, unless the procurement is 
linked to a national emergency.  While foreign firms are granted 
national treatment for public bids, some still complain of 
mismanagement and lack of transparency in the bid processes. 
Government purchases and project acquisitions are generally 
exempted from import duties. 
 
9.  Honduras is not a signatory of the WTO Government Procurement 
Agreement.  In the past, the United States has raised concerns 
regarding Honduras' lack of cooperation in the WTO Working Party 
on Transparency in Government Procurement.  In recognition of 
increased cooperation in the WTO Working Party on Transparency in 
Government Procurement, the United States reinstated a waiver of 
"Buy America Act" provisions in 2002 which had previously been 
suspended for Honduras. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
10.  Honduras largely has complied with the WTO Agreement on 
Trade-Related Aspects of Intellectual Property Rights (TRIPS), 
through legal revisions enacted in December 1999.  The Honduran 
Congress still must, for instance, adopt reforms related to 
integrated circuit designs and plant variety protection to be in 
full compliance with TRIPS. 
 
11.  Honduras and the U.S. initialed a Bilateral Intellectual 
Property Rights (IPR) Agreement in March 1999.  Final signature 
of this agreement is still pending.   Honduras became a member of 
the World Intellectual Property Organization (WIPO) in 1983. 
 
Copyrights 
 
12.  Honduras' copyright law, updated in 1999, added more than 20 
different criminal offenses related to copyright infringement and 
established fines and suspension of services that can be levied 
against offenders.  The piracy of books, sound and video 
recordings, compact discs, and computer software is still 
widespread in Honduras, however, due in part to limited 
enforcement capacity.  U.S. companies are concerned that recent 
attempts to prosecute computer software infringement cases have 
been met with resistance by officials in the Ministry of Industry 
and Trade's IPR Division and the Attorney General's office. 
 
Patents and Trademarks 
 
13.  Honduras ratified the Paris Convention for the Protection of 
Industrial Property in 1994.  The Honduran Congress enacted a 
1999 Law of Industrial Property to provide improved protection 
for both trademarks and patents.  To be protected under Honduran 
law, patents and trademarks must be registered with the Ministry 
of Industry and Trade. 
 
14.  Recent modifications to the Patent Law of 1993 include 
patent protection for pharmaceuticals, and extend the term of 
protection for a patent from seventeen to twenty years from the 
date of filing to meet WTO standards.  The term for cancellation 
of a trademark for lack of use has been extended from one year to 
three years.  Trademarks are valid for up to 10 years from the 
registration date.  The illegitimate registration of well-known 
trademarks has, however, been a persistent problem in Honduras. 
 
15.  A U.S. pharmaceutical company has complained that the 
Ministry of Health, in approving a competing company's 
pharmaceutical product, did not respect their data exclusivity 
rights as guaranteed in article 77 of Honduras' Industrial 
Property Law and article 39 of the WTO TRIP's agreement.  The 
Ministry of Health approved the competing pharmaceutical product, 
despite communication from Honduras' IPR Division that the U.S. 
company's research and data were protected under Honduran law. 
The U.S. company argues that in order for the competing product 
to be legally registered with the Ministry of Health, the company 
needs to provide the research and data to support their 
application.  Honduran law provides five-year exclusive use of 
data provided in support of registering pharmaceutical products. 
 
SERVICES BARRIERS 
 
16.  Special government authorization must be obtained to invest 
in the tourism, hotel and banking services sectors.  Foreigners 
may not hold a seat in Honduras' two stock exchanges or provide 
direct brokerage services in these exchanges.  Honduran 
professional bodies heavily regulate the licensing of foreigners 
to practice law, medicine, engineering, accounting, and other 
professions. 
 
INVESTMENT BARRIERS 
 
17.  The Constitution of Honduras requires that all foreign 
investment complement, but not substitute for, national 
investment.  Companies that wish to take advantage of the 
Agrarian Reform Law; engage in commercial fishing, forestry, or 
local transportation activities; serve as representatives, 
agents, or distributors for foreign companies; or operate radio 
and television stations must be majority-owned by Hondurans. 
Government authorization is required for both foreign and 
domestic investors in basic health services; telecommunications; 
generation, transmission, and distribution of electricity; air 
transport; and mining. 
 
18.  In addition, special government authorization is required 
for foreign investment in the following sectors: forestry, 
telecommunications, basic health, air transport, fishing and 
aquaculture, mining, insurance and financial services, private 
education, and those agricultural and agro-industrial activities 
exceeding land tenancy limits established by law. 
 
19.  Small-scale commercial and industrial activities with an 
investment less than 150,000 lempiras (about $9,000), excluding 
land, buildings, and vehicles, are reserved exclusively for 
Honduran nationals.  For all investments, at least 90 percent of 
a company's labor force must be Honduran, and at least 80 percent 
of the payroll must be paid to Hondurans. 
 
20.  Foreign ownership of land within 40 km of the coastlines and 
national boundaries is constitutionally prohibited, though 
tourism investment laws allow for certain exceptions. Inadequate 
land title procedures have led to numerous investment disputes 
involving U.S.-citizen landowners. 
 
21.  Historically, U.S. firms and private citizens have found 
corruption to be a problem and a constraint on foreign direct 
investment.  Corruption appears to be most pervasive in the 
following areas: government procurement, performance 
requirements, the regulatory system, and the buying and selling 
of real estate, particularly land title transfers.  Honduras' 
judicial system is easily influenced; investment and business 
disputes involving foreigners have rarely been resolved in a 
transparent manner.  In 2002, however, the Honduran Supreme 
Court, the appeals court and the executive branch have looked 
into some of these specific problems and been helpful in pushing 
delayed cases toward resolution.  The Honduran government also 
has plans to submit a small number of land expropriation cases to 
arbitration. 
 
22.  On July 12, 2001, a Bilateral Investment Treaty (BIT) 
between the U.S. and Honduras entered into force.  The treaty 
provides for equal protection under the law for U.S. investors in 
Honduras and permits expropriation only in accordance with 
international legal standards and accompanied by adequate 
compensation.  U.S. investors in Honduras also have the right to 
submit an investment dispute to binding international 
arbitration.  Honduras has taken the following limited exceptions 
to its BIT national treatment obligation: properties on cays, 
reefs, rocks, shoals or sandbanks or on islands or on any 
property located within 40 km of the coastline or land borders of 
Honduras; small scale industry and commerce with total invested 
capital of no more than $40,000 or its equivalent in national 
currency; ownership, operation and editorial control of broadcast 
radio and television; ownership, operation and editorial control 
of general interest periodicals and newspapers published in 
Honduras. 
 
Palmer